There has been a lot of leasing and development activity in Orlando’s office sector thus far this year.
In its first-quarter 2024 report for Florida, the JLL discovered that Orlando’s average medical office vacancy rate had decreased by 20 basis points from the previous quarter, to 10.9%.
In addition market saw over 67,000 square feet of medical office leasing activity in the quarter, putting the area on pace to surpass the 360,000 square feet of transactions from the previous year.
Furthermore, compared to the 335,000 square feet delivered in 2023, the market has about 461,000 square feet of new medical office space under construction. The largest projects include the 45,000-square-foot Nona Medical Center at East Park Village, the 86,000-square-foot Upshot Medical Center, and the 189,000-square-foot Orlando Health Children’s Pavilion.
Here, Lucia Hedke, JLL managing director and leader of the firm’s health care practice in Florida, spoke with Orlando Business Journal on why medical office has been strong and how the Central Florida market compares to others in the state:
What is the outlook for Orlando’s overall office market this year?
The Orlando office market [overall] kick-started 2024 with stable leasing activity at 404,000 square feet, down 18% year-over-year. Along with an upturn in year-over-year [medical office space] leasing comparison, net absorption was recorded at 111,000 square feet as significant tenants occupied their space.
How does the medical office market compare to others in the state when it comes to vacancy and new inventory?
Orlando has the highest vacancy with 10.9% and 461,000 square feet under construction. Jacksonville follows with 9% [vacancy] with 212,000 square feet under construction, and South Florida is 8% vacant with over 500,000 square feet under construction. Despite vacancy rising 60 basis points from last quarter, Tampa-Clearwater-St. Pete remains historically tight at 6% vacant with only 140,000 square feet under construction.
What is driving demand for medical office space in Orlando?
Population growth and aging population. The aging population increases the demand for specialized medicine and specialized medical facilities. Tourism and hospitality also should be mentioned since Orlando is a major tourist destination. This continuous influx requires medical service increases. Finally, economic growth, increased employment and income levels allow individuals to have more access to health care services, leading to greater demand.
Do you expect Orlando to continue adding medical office space?
I do; however, the timing will be contingent upon interest rates.
What challenges are tied to medical office space in Orlando?
Tenants still are wrapping their heads around the increased rates. Similar to that in Jacksonville and Tampa, rent structures for new construction now are based on triple-net lease values versus full service or modified gross, which, as a result, is increasing rents by approximately $7 to $12 per square foot.
How is medical office space faring when compared to non-specialized forms of office development?
The smaller clinical transactions are moving at a faster pace than office. Quality second-generation [space] is priceless — speed to market and reduced construction delays/costs is a priority for most of my clients, especially those entering the market or expanding throughout the state. When I speak with my clients, I explain the importance of us being quick and nimble so we may secure space as soon as we identify a good option. As for larger users, there isn’t much inventory for 15,000 square feet or more of contiguous space. These deals naturally take longer to transact, and they have an appetite for a longer lease term, which means they can consider new construction. That said, landlords who provide generous [tenant improvement allowance] packages are winning — some are even offering turn-key solutions.
Source: OBJ